CIRCULAR FLOW MODEL
Dollars flow into the hands of laborers after they work for a business. After consumers pay taxes on these earned dollars, they either spend or save them. When these dollars are spent, they go back to businesses where these businesses can buy more capital and pay their laborers. The cycle starts over and the economy grows (Circular Flow, n.d.).
In developing countries, it is difficult for the economy to grow on its own because there is a cycle of poverty that compounds on itself. This occurs when poorer populations have low levels of disposable income after working low-paying jobs that do not require high levels of education. Low disposable income leads to low levels of savings and does not provide the economy with investment growth (Piros & Pinto, 2013). This creates a poverty trap, wherein an economy does not have the internal ability to grow out of the above-described circular flow of money.
In contrast, when the circular flow model grows the economy, the consumer has a reasonable personal disposable income that allows them to spend money. This is matched by a higher demand at businesses, leading to more wages being paid to laborers. Laborers can then spend that money at businesses to continue the process at a faster and more widespread rate. In addition to spending more money, consumers can save money, which can be invested and further boost the economy. As labor wages and consumer spending increase, government revenues increase and help fund national programs that can stimulate the economy.
Keeping all other inputs equal, education would be an inducement for economic growth at both the micro and macro level. If an individual’s income could increase, for example, 30% then that person would be able to start spending and saving more. As it relates to the circular flow model described above, this would help stimulate the economy on the macroeconomic level (Economics of Education, 2014). Education, by that measure, would be beneficial to an individual if it granted them the 30% pay increase, given that a job with a 30% higher wage is available. If the job is not available, as would be the case in the short run, their productivity at the lower-wage job that is currently available would eventually allow for the demand of the higher wage. Improved education could also improve the skill level of the discouraged and unemployed worker, thereby improving their job opportunities (Piros & Pinto, 2013). With a more educated labor force, technological breakthroughs can not only be realized, but investment in these technologies will become less risky.
SOLOW GROWTH MODEL
There are several factors that contribute to an economy’s growth according to the Solow growth model, outlined as capital, labor and total factor productivity (Piros & Pinto, 2013). Total factor productivity is often referring only to technology, however, it encompasses any input factor that is outside a simple increase in capital or labor. This can include human capital growth which covers investment in education and on-the-job training.
Education can occur at any age level, but my focus is on youth education. This is simply to hone in on the education in schools, which is a pre-existing venue for learning. In order to increase education, both on-the-job training for teachers and personal disposable income must be increased.
On-the-job training will rely on programs to develop and deliver teacher education to improve the education standards. Not only will teachers who improve their skill be able to teach better concepts more effectively to students, but will attract more students to learn at that school. Increased student attendance leads to increased revenues for the school, which can increase wages for teachers who have garnered experience and training. In other words, better teachers attract students who pay the school, and schools can pay more to better teachers. Not only can increased revenues for schools increase teacher wages, but they can increase investments in teacher education programs, further improving teachers’ abilities.
Personal disposable income could be increased by a stimulus to the economy, either through labor productivity increases or from foreign investments (Piros & Pinto, 2013). If new laborers in the workforce are more educated, they will be able to produce more in the same number of hours as a less-educated, less-skilled workforce. Higher levels of productivity at the same price can allow for an increase in demand, or a decrease in price (or more likely, a combination of both). When consumers can buy more for less, they will spend more money, stimulating the economy through the circulation of money. Outside investments into the country can also boost circulating money within the country, thus increasing consumer spending. If foreign investors saw a potential rise in an industry in Cameroon, due to an increase in technological advancements by a more-educated working class, they would be motivated to put money into Cameroon’s economy.
Foreign investment into Cameroon is a delicate situation at present because of the lack of government accountability to its people. With crude and refined oil making up over half of the exports of the nation, the government can be less reliant on microeconomic stimuli (Products Exported by Cameroon, 2014). As late as May 2016, cases of embezzlement in Cameroon’s government have surfaced, leading to arrests and losses of government funds over $150 million (Kindzeka, 2016). These monies are taken out of the pockets of citizens who would be new consumers in the market. Increasing personal disposable increase, therefore, has roadblocks that must be carefully considered. Increasing revenues for a still corrupt-burdened government can interrupt, delay or extinguish the circular flow model, simultaneously hindering the benefits of increasing human capital. In the 2015 Transparency International corruption perceptions index, Cameroon ranks 130 out of 168 countries, which is just below the top of the lowest quartile (Cameroon Overview, 2016).
FUNDING AND APPLICATION
Sourcing investments for these various plans will be a major roadblock to this project. The International Monetary Fund and the World Bank, in a joint Debt Sustainability Analysis, raised Cameroon’s risk of external debt distress from moderate in 2014 to high in 2015 (Cameroon Overview, 2016). Combined with falling global oil prices, given Cameroon’s established reliance on oil exports, the economy does not look promising for investors who are interested in monetary returns instead of human capital returns. While an extremely large endeavor, I aim to work on top of results-driven programs by both of these international aid organizations that range from infrastructure projects to agriculture competitiveness (Financing the Future, 2015; Cameroon Overview, 2016). Working to improve existing programs through education will help procure investment funds. Further, by starting in only a handful of schools and small cities, we can better track our results to report to current and prospective investors.
Similar to Blake Mycoskie’s shoe-giving company, TOMS, I aim to build a for-profit/charity-driven business model (Zimmerman, 2009). This would be a company that would provide outside funding at planned rate of installments to keep certain programs running, specifically teacher training programs and school tuition programs. By investing in both of these for a period of time, it can act as a “quantitative easing” of education instead of money. Eventually, by measuring various rates including unemployment, the activity ratio, secondary education enrollment, higher education enrollment and productivity rates of the economy, I can gauge the effectiveness of the investments and taper the education investments. A stronger economy will be able to run itself much like jumpstarting a car whose engine can charge its own battery.
Working with several native Cameroonians as well as education developers and teacher trainers here in the US, we will create an online program to be paired with on-site seminars that are free of charge. Cameroon citizens will be able to sign up in numerous cities for these courses aimed at providing unskilled workers with in-depth instruction, given in a series for a single subject. This will start on a generic level with skills that are translatable to many different industries including problem solving, communication, and project management/organization. With more investor funding, we will be able to provide training for specific industries such as oil production and technology. Since the internet is scarce and unpredictable in much of Cameroon, the online programs will be used at larger seminars in the main cities where internet is reliable. These programs will include video instruction, interactive challenges, and testing modules as developed by the educators I am sourcing. These programs aim to improve critical values of employees that can use these skills at their current job.
Additionally, outside investment sought by myself and a Cameroon-native I am closely working with will help to inject larger sums of money into the economy through business development in budding sectors. After seeking out these developing businesses in Cameroon, we will create portfolios of companies that can be invested into as a pool, thereby spreading the investment dollars across many different possible growth opportunities. This will approach the circular flow model from the aspect of putting more money into the hands of Cameroon citizens, as well as creating more jobs.
To improve the primary and secondary education, the training seminars will include a teaching series provided exclusively for current teachers and those seeking a job in teaching. The teacher trainers we are consulting with will develop programs that provide teachers with the latest technology in concepts and applications. Expanding upon the use of investments detailed above, we will use allotted investment monies to provide teachers with stipends for their classroom. This will start with books and supplies and eventually branch to computers and other hardware technologies. These stipends can be extended to students needing aid in buying school supplies and uniforms.
Cameroon overview. (2016, April 8). Retrieved October 02, 2016, from http://www.worldbank.org/en/country/cameroon/overview
Circular flow. (n.d.). Retrieved October 2, 2016, from https://www.stlouisfed.org/education/economic-lowdown-video-series/episode-6-circular-flow
Economics of education. (2014, April 25). Retrieved October 02, 2016, from http://www.worldbank.org/en/topic/education/brief/economics-of-education
Financing the future: Infrastructure development in Central Africa. (2014, March 10). Retrieved October 02, 2016, from http://www.imf.org/external/np/seminars/eng/2014/cmr/
Kindzeka, M. E. (2016, May 17). Corruption probe nabs 14 more Cameroon officials. Retrieved October 02, 2016, from http://www.voanews.com/a/cameroon-corruption-probe-arrests/3332488.html
Piros, C. D., & Pinto, J. E. (2013). Economics for investment decision makers: Micro, macro, and international economics. Hoboken, NJ: Wiley.
Products exported by Cameroon. (2014). Retrieved October 02, 2016, from http://atlas.media.mit.edu/en/visualize/tree_map/hs92/export/cmr/all/show/2014/
Zimmerman, M. (2009, September 29). The business of giving: TOMS Shoes. Retrieved October 02, 2016, from http://www.success.com/article/the-business-of-giving-toms-shoes